Alright, I have just bought my first property and I am already looking at the next step(s) that i should be taking. I just bought a townhouse in cragieburn as a house and land package for around 320-330k. Whilst this is not a type of house or area i would like to be investing in, I am doing so because I was offered the land for 60k less than what the land accross the road went for as a family member who is a builder sold it to me for what he paid for it on the condition i get him to build the house. The house is a modern, 3 bedroom townhouse, with a detached 2 car garage on a corner block. With the town centre expected to start construction at some point next year, i see that it will be stupid for me to sell as soon as possible.
because i am a uni student, i am was unable to get a loan of any sort in my name, because nobody can trust a 21y.o uni student who works part time to make the repayments. Because of this, in order to get the money, my parents took out a LOC in their name, which I am to pay off. once the house has been completed, i will be paying $400/week in interest.
as for tennants, my cousin has been approached by a company asking to use a house as an office, and if they decide to pick mine, the expected rent will be hopefully $400/week. If this doesnt eventuate, I will use my FHOG and have the house as my PPOR for 6 months, and then rent it out, possibly for only $350/week.
as this is my first property, im not too sure on how i should approach things. should i be aiming to pay off as much of the capital as possible, thus reducing the interest to be paid each week, and also increasing the equity (or am i wronng in saying that the equity will increase as the line of credit is against my parents property, thus making my equity the total houses value). alternatively, should i be aiming to pay just the interest, and save up whatever money i can to look at buying my next property, and possibly use my FHOG for it.
also, for my next property, should i be planning to use my equity, or would it be best to take out another loan. Ideally, i would like to be a completely seperate entity to my parents so that we do no effect eachother, so the sooner this could happen the better. if i do plan to use my equity, what would be a reasonable estimate for the properties value with 2 years of compound growth (current rate is a little of 10%) plus additional equity gained from better infrastructure such as the town centre that is going to be built.
sorry about all the questions, i have confused myself while typing this, and have been up since 4am (currently 2am
) n had a combined total of 6 hours sleep these last 2 days, so chances are this makes no sense. but if you could give me advice on what you think i should do in my situation, it would be greatly appreciated. if you need more info, let me know in ill get back to you asap.thanks ladies n gents!
First and foremost, between yourself and your parents, it needs to be decided who is going to utilise the tax deductions this property will generate. If it will be you, make sure there is some bit of paper somewhere that explicitly states that your parents loaned you some money, and what interest rate they are charging you. Ideally, a log or something should be kept to show the interest added and payments made. (I think you can carry forward property losses into future years??? If this is so, you would be able to write off a lot in your first year of working. I really am not sure on this – check with the ATO)
Get a Quantity Surveyor to produce a depreciation schedule on the place. It'll be worth thousands in tax refunds.
As the financing setup is a bit different to the norm, I won't comment on whether you should pay the loan down fast or otherwise. I'll leave that to one of the brokers or financiers on here to comment.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Matt
I admire your enthusiasm however am not sure whether you have fully understood the way in which the deal would work.
I am assuming the Title is in your name and therefore ONLY you can claim any of the Tax deduction that would be available. Being still at Uni and working part time the deductions would be negligible. If however you purchase the property at a PPOR then this wont apply anyway.
Now i am assuming that your parents drew up a Mortgage which you signed lending you the money at whatever rate and terms you negotiated.
Personally i can see why they used a Line of Credit but wouldnt have suggest this as a loan structure.
I would assume that they will want you to pay the loan off as quickly as possible in order to free up their access to funds and therefore would suggest as soon as you can do so you take out a loan on your current property and pay them back.
Now with regards to your next property. I think the biggest issue is going to be serviceability rather than access to equity as clearly with an unencumbered property at the moment you could tap into the equity here to fund the deposit and acqusition costs but proving you could fund the loan is going to be the hard part.
Think you might need some professional assistance in going forward.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yes, its a bit of a tricky situation.
Ideally you should save your money in a 100% offset account and have an IO loan. But your bank is your parents and they wouldn't offer too many products would they!
I am a bit worried about them protecting themselves. You should speak to a lawyer if you haven't already done so. Make sure there is a loan agreement (written in place) and a mortgage. If you don't do this then it is possible the ATO may disallow the interest and their money could be at risk down the track if you are sued or enter into a relationship with someone. I would suggest you remain celibate or see a lawyer asap.
Once you get a job and qualify for a loan etc it would probably be a good idea to pay them out (and having it properly documented now will help the new lender believing this is a real loan too). For future properties you could possibly borrow the 20% deposits from the parents again, or just use your own equity. Get IO loans, one at least with a 100% offset.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
) n had a combined total of 6 hours sleep these last 2 days, so chances are this makes no sense. but if you could give me advice on what you think i should do in my situation, it would be greatly appreciated. if you need more info, let me know in ill get back to you asap.
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